These are rallies based on long-term fundamentals - follow the news and watch the chart patterns for value zones.

Several markets have caught my eye recently because of spectacular price moves. And while they may be overbought at this time, the fundamental reasons for these rallies may have lasting effects that could carry over for several more months and maybe even into next year.

In other words, I believe the fundamental foundation has been laid in these markets for longer-term bull market rallies. However, over the short-run these markets may be a bit too pricey. I believe that these markets will maintain their upside bias over the next 3 to 6 months and that all investors have to do is wait for prices to retrace into value areas.

Because of the size of their recent rallies, I believe it will be prudent to wait for pullbacks into value zones rather than chase the market higher. By waiting for these market to pull back and watching hedge fund and money management activity, I think you can get on the right side of the market with identifiable risk.

Reading the headlines and paying more than you should just to be a player, will expose you to too much risk. So if you can restrain yourself and wait for the right opportunity, I think you will be able to successfully take advantage of their bullish fundamentals.

The four markets you should be watching for longer-term rallies over the next several months and perhaps into next year are: natural gas, coffee, sugar and orange juice.

Natural Gas

Natural gas futures are set up for their first major rally in over two years. Lingering heat throughout the summer caused record demand for gas-fired power at a time when producers were cutting output. This helped trim the huge supply glut that had put a lid on any rally while pressuring prices to near historical lows.

The easing of the glut is coming just ahead of the high-demand winter-heating season. This should be enough to support the market, but we’re going to need a shot of gold weather to get things moving.

According to the Commodity Weather Group LLC in Bethesda, Maryland, the U.S. could see a shot of cold weather comparable to the pattern we saw in 2014. If the U.S. can’t replenish its supply enough to offset the expected demand from the winter chill, we could see a major shortfall by March.

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Coffee, Sugar and Orange Juice

After spending most of the year drifting sideways to lower while other investors were chasing stocks, gold and crude oil futures, the coffee, sugar and orange juice market came to life as heavy hedge fund buying drove these markets into multi-month highs.

The reason for the hedge fund interest was the crop damage experienced by these three markets due to the weather in Brazil. Across the coffee belt, dry weather hurt production of Arabica and robusta beans. Excessive rain limited production in the orange juice belt and frost helped reduce sugar yields.

Brazil is the world’s largest producer and exporter of these three key foods. This is the main reason the hedge funds are pouring money into these three markets. According to the Commodity Futures Trading Commission which keeps track of position sizes, the combined holdings for these three commodities are currently at or near 10-year highs.

The damage to the crops is not isolated to the 2016 harvest. It should also have an effect on the 2017 crops. Therefore, we could see the bullish trend continue into next year.

If you believe that the big money is the smart money then the thing to do is to try to get on the side of the hedge funds at prices you can afford and give you the most limited exposure. Therefore, you’re going to have to try to enter these markets on pullbacks into value zones.

If you chase the markets or pay too much and the hedge funds decide to pare positions or take a little profit, you can get taken out of the market before the next rally starts. So be patient and wait for the right opportunity.

Conclusion

I believe that natural gas, coffee, sugar and orange juice have just started the first leg of a prolonged bull market. It is suggested that you follow the news regarding these four markets and watch the chart patterns for moves into value zones that may offer you an opportunity to take advantage of the potentially bullish fundamental developments.

James A. Hyerczyk is a financial analyst for FX Empire, a leading financial portal. James has worked as a fundamental and technical financial market analyst since 1982. His technical work features the pattern, price and time analysis techniques of W.D. Gann.